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34.6 Accounts Payable Controls

Overview​

Accounts payable controls ensure that payments are made only for valid obligations, prevent duplicate payments, and ensure accurate recording. Effective controls protect against fraud and errors in the payment process.

Purchase Controls​

Purchase Authorization​

Authorization Procedures:

  • Require purchase orders for significant purchases
  • Set approval limits
  • Owner approval for large purchases
  • Document authorizations
  • Review purchase requests

Purchase Orders​

Purchase Order Controls:

  • Use pre-numbered purchase orders
  • Require purchase orders for significant purchases
  • Match purchase orders to invoices
  • Track purchase orders
  • Close completed purchase orders

Invoice Processing Controls​

Invoice Receipt​

Invoice Receipt Procedures:

  • Centralize invoice receipt
  • Date stamp invoices
  • Verify invoice accuracy
  • Match invoices to purchase orders
  • Verify receipt of goods/services

Invoice Approval​

Approval Procedures:

  • Require approval before payment
  • Verify goods/services received
  • Check prices and quantities
  • Verify calculations
  • Owner approval for significant amounts

Payment Controls​

Payment Authorization​

Payment Authorization:

  • Authorize payments only for approved invoices
  • Verify payment amounts
  • Check payment terms
  • Prevent duplicate payments
  • Owner approval for significant payments

Payment Processing​

Payment Procedures:

  • Use checks or electronic payments
  • Pre-numbered checks
  • Match payments to invoices
  • Cancel paid invoices
  • Secure check storage

Vendor Controls​

Vendor Management​

Vendor Controls:

  • Maintain vendor master file
  • Verify vendor information
  • Approve new vendors
  • Review vendor statements
  • Monitor vendor relationships

Vendor Statement Reconciliation​

Reconciliation:

  • Reconcile vendor statements regularly
  • Investigate discrepancies
  • Verify all invoices received
  • Confirm payment status
  • Document reconciliation

Luxembourg Compliance Note​

Important Requirements:

  • Payment accuracy: Must pay only valid obligations
  • VAT handling: Must handle input VAT correctly
  • Documentation: Must maintain payment documentation
  • Approval: Should require approval for payments
  • Reconciliation: Should reconcile vendor statements

Common Issues:

  • Duplicate payments: Paying invoices twice
  • Unauthorized payments: Payments without approval
  • Invoice errors: Not catching invoice errors
  • No reconciliation: Not reconciling vendor statements
  • Poor documentation: Inadequate payment documentation

Think It Through​

Artisan Boulangerie receives many invoices from suppliers. How can they prevent duplicate payments? What controls should they implement?

Concepts in Practice​

Accounts Payable Controls Example

Artisan Boulangerie payable controls:

Purchase Controls:

  • Purchase orders for purchases >€100
  • Owner approval for purchases >€500
  • Purchase orders tracked
  • Matched to invoices

Invoice Processing:

  • Invoices date-stamped on receipt
  • Invoices matched to purchase orders
  • Prices and quantities verified
  • Owner approves invoices >€200
  • Invoices filed by vendor

Payment Controls:

  • Payments made only for approved invoices
  • Checks pre-numbered
  • Payments matched to invoices
  • Paid invoices marked and filed
  • Owner reviews payments monthly

Vendor Controls:

  • Vendor master file maintained
  • New vendors approved by owner
  • Vendor statements reconciled quarterly
  • Discrepancies investigated

Result: Effective payable controls, duplicate payments prevented, accurate recording, fraud prevention.